Saving for pension vs saving for children’s uni fees or property down payment

BuildTheWall

Anonymous101 said:

That is my point really, if you're unlikely to ever pay it off then you need to ask yourself the question of how much is that loan really costing you?

And this is exactly what Martin Lewis was alluding to. Some people don’t understand that it is not a loan that needs to be repaid and people shouldn’t think of it as a burden.  

MallyGirl

It is not obvious to find but this is a useful calculator on whether you will pay off the student loan:
https://www.moneysavingexpert.com/students/student-finance-calculator/
My daughter is studying vet med for 6 years - no option of an apprenticeship but she could have opted for a 5 year course elsewhere.
They don't start paying back till the April after graduation - by that time she will owe £104k inc interest. By the time they wipe it at 30 years she will have repaid (based on a load of assumptions) £31k. If she takes time out to travel and/or have a family then she will repay less.

Anonymous101

zagfles said:

Anonymous101 said:

zagfles said:

Getting much more than a min wage job is hard without a degree these days. You need to be a serious earner to fully repay the loan, according to Martin, with the full loan, even with a starting salary of £50k rising over 30 years to £205k you won't pay it all off.

https://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/

So yes house deposit etc is a much better way of helping kids. Maybe even increase your pension conts so they get a bigger loan!

That is my point really, if you're unlikely to ever pay it off then you need to ask yourself the question of how much is that loan really costing you? Over a lifetime you'll pay much much more than the original capital.
The loans used to be at a low interest rate but I don't think this is the case anymore.

Same applies to any long term loan, eg mortgage. But the key differences are you can get better mortgage rates with a bigger deposit, if you lose your job you still have to pay your mortgage, your mortgage needs paying until it's fully paid off.

That's a fair point and the reason why in my original comment I said I thought it was better to chose the loan rather than paying fee's etc from savings.

BuildTheWall said:

Except that you're effectively handy capped by an additional tax on earnings above a threshold for the rest of your life. As my point above you'll likely be paying back much much more than the original loan amount. There is therefore a heavy penalty for not paying it back quickly.

1st point - not really. You’ll be paying roughly 2% if you earn 35k and 4% if you earn 50k. That’s fair enough for the opportunities a college education brings. The ecosystem, alumni association, campus recruitments etc - even one additional job opportunity is better than nothing. Also, you can reduce this tax by increasing pension contributions through salary sacrifice. 

2nd point - false. 83% of students don’t pay back their loans, forget the interest. This is as per official statistics- not your made up numbers. Go read the student loan guide on this website before commenting and propagating false information. 

Finally, choosing to get a college education is an individual choice. I won’t force my kids, but I’ll encourage them to get one. It’s easy to talk about apprenticeships in 2003. How many apprenticeships have you seen in 2020? And how many will be successful? For each opportunity today, there are 500 candidates. The minimum requirements for jobs are getting tougher each year. Don’t forget that competition is global. 

I didn't referenced any numbers so I'm not sure how you think I'm making them up? As for giving false information my post is my opinion nothing more.

As you said the stats are 83% of students don't pay back their loans in full that's an extremely high proportion. I've read the guide, £50k pa is around the cut off point where you'll pay off the capital over the 30 year repayment window. Given inflation etc it's a good deal if you'll earn less than that. If you expect to earning above this you'll either repay the loan in full or, if not, you'll repay more than you borrowed.

I can only speak from experience, I've worked for 3 companies since I left University each of which has, and continues to have, rolling apprenticeship programmes including a 2020 intake. I've mentored some of these people so I'm very aware of their education and career progress. Its only my opinion but I feel that this is a much better route into a career than going to University and graduating then looking for a job that is unless taking a very vocational course like nursing, medicine or dentistry.

DT2001

Going back to original question. Depending on circumstances (employed/self emp/limited company) maybe possible to manipulate timing of payments into pension to reduce expected parental contribution and access larger loans.
I agree to taking as much as possible via Student Loan. The cost can only be estimated or worked out afterwards and if you do end up repaying it all or most of it ones assumes it was a very good investment.
It is a balancing act as most will want to help their children as much as possible whilst saving for their own retirement. We are self employed and have employed our children from 14 on low wages but this has helped them build up funds for Uni or house deposit via HTB ISA (youngest will have to have LISA). Starting early helped with 4 kids.
Our eldest then took an apprenticeship (there are some still out there in the construction industry - not sure about other avenues), our 2nd is at a French Uni (much lower fees, I think even after Brexit) and utilised website offering reduced accommodation in exchange for home help (child care). Our 3rd is aiming for Russell Group and high paying scientific jobs so interesting to read comments and listen to Martin’s piece (thanks mallygirl and zagfles for links). 
Grandparent has helped using excess income (IHT relief) to cover shortfall on 2nd child’s costs. Not sure of any help available if studying overseas.

Thrugelmir

Mickey666 said:

venison said:

personally i would let the kids worry about their own uni fees, and same for a deposit on a house, if they can't afford it they can rent.
Close the bank of mum and dad is my advice.

Yep, and get them out to work at 14 as well so they can pay their own way - little scroungers

I started my first Saturday job at 12. 

Albermarle

Thrugelmir said:

Mickey666 said:

venison said:

personally i would let the kids worry about their own uni fees, and same for a deposit on a house, if they can't afford it they can rent.
Close the bank of mum and dad is my advice.

Yep, and get them out to work at 14 as well so they can pay their own way - little scroungers

I started my first Saturday job at 12. 

I was first fired at 16 !

atush

BuildTheWall said:

Can people share their thoughts on how to strike a balance between saving for pension vs saving for children’s uni fees or a down payment for them buying a property?
would you maximise pension and let the child take a student loan until you retire and then you can help them repay the loan? 

Helping for property purchase might be a little easier as many parents reach retirement age (55 / 57) before children buy a property. So taking some money out of tax free lumpsum shouldn’t be a problem?
Or would you save in ISA to cover these expenses and not touch pension at all? That’s a nice one if possible, but not all can do it?

3/4 prong approach.  Pension, at the max of your employers contribs at the very least.

Property deposit and emergency fund next/alongside, can be the same at first, then strip out the emergency fund,
Then save for children be it university, or house etc.  i saved for uni for my 3, and they all graduated w/o a penny of student debt.  At 6% interest at the time, was best decision, and all 3 earn enough to pay back so all have benefitted greatly not carrying debt.

fred246

Take 2 scenarios. Assume dad has £102K. Student has £50K job and buys a house for £250K
1.Dad uses £37K to pay student fees and gives £40K to his daughter for living expenses and £25K for a house deposit. When she graduates she needs a £225K mortgage costing £1095 a month according to Nationwide. She pays no monthly loan repayment.
2.Dad is well paid so takes maximum student loan which pays tuition fees and £4289 living costs so dad pays £5711 x 4 = £22844 living costs. He gives his daughter £79156 for her house deposit. She pays £690 a month on her mortgage. She pays £175 a month student loan repayment.
So scenario 2 saves £405-£175=£230 a month.

westv

The problem with "loan" is that it puts into people's heads something that should be paid off ASAP even if that is pointless for most.

Albermarle

westv said:

The problem with "loan" is that it puts into people's heads something that should be paid off ASAP even if that is pointless for most.

Better to call it a graduate tax for above average earners .